Sugar Prices Drop Amid Rain Forecasts and Production Updates

March NY world sugar #11 (SBH25) closed down -0.14 (-0.63%) on Thursday, while December London ICE white sugar #5 (SWZ24) fell by -1.50 (-0.26%).

Brazilian Weather Brings Mixed Signals

On Thursday, sugar prices experienced a pullback after an early gain. This shift occurred as forecasts indicated significant rain in Brazil’s Center-South region, easing persistent drought worries. According to meteorologist Climatempo, more rainfall is expected starting Friday, which could lead to cooler temperatures and improved soil moisture. This region is critical as it produces a significant portion of Brazil’s sugar.

Production Challenges and Adjustments

Support for sugar prices emerged on October 11 when Unica reported a -16.2% year-over-year decline in sugar output for Brazil’s Center-South in late September, totaling 2.829 million metric tons (MMT). However, from the start of the 2024/25 campaign through September, cumulative sugar output rose by +1.5% to 33.154 MMT.

Brazil has faced severe drought and heat, leading to fires that severely impacted sugar crops, particularly in Sao Paulo. Industry group Orplana noted around 2,000 fire incidents affected up to 80,000 hectares of sugarcane. Green Pool Commodity Specialists quantified the potential loss at approximately 5 MMT of sugarcane. Reflecting these concerns, Brazil’s government crop forecasting agency, Conab, reduced its overall 2024/25 sugar production estimate to 42 MMT from 42.7 MMT as of August 22. Similarly, Rabobank lowered its forecast on September 20 to 39.3 MMT, down from 40.3 MMT, citing extreme dryness. Additionally, Datagro cut its forecast on Monday to 38.7 MMT, revising down from 39.3 MMT.

India’s Monsoon and Export Policies

Conversely, optimism for a substantial sugar crop in India is bearish for global prices. The Indian Meteorological Department recorded 934.8 mm of rainfall during this year’s monsoon season, marking the highest level in four years and exceeding the long-term average. India’s monsoon runs from June to September.

Meanwhile, the Indian Food Ministry’s decision on August 30 to lift restrictions on sugar mills producing ethanol may further delay sugar export curbs for the upcoming November 2024/25 season. In December of last year, India imposed limits on sugarcane used for ethanol production to stabilize sugar reserves. Since October 2023, India has restricted sugar exports to ensure domestic supply, allowing just 6.1 MMT during the 2022/23 season after a peak of 11.1 MMT previously. On October 3, the Indian Sugar and Bio-energy Manufacturers Association indicated that India could export 2 MMT next season, urging the government to review current export limitations.

Data from the ISM on May 13 showed a -1.6% decline in India’s sugar output for the season through April, while a September 26 projection predicted a -2% reduction in 2024/25 production, totaling 33.3 MMT. India’s sugar reserves estimated on September 30 stood at 8.4 MMT, down from an earlier forecast of 9.1 MMT in May.

Global Production Dynamics

In Thailand, higher sugar production forecasts contribute to bearish sentiment. The Office of the Cane and Sugar Board recently projected a +18% increase in sugar production for the 2024/25 season, reaching 10.35 MMT, up from 8.77 MMT in the previous season.

On a global scale, the International Sugar Organization (ISO) on August 30 predicted a significant sugar deficit of -3.58 MMT for 2024/25, contrasting sharply with the previous year’s estimated -200,000 MT deficit. The forecast suggests a decrease in global sugar production to 179.3 MMT, a -1.1% drop from last year’s 181.3 MMT.

Additionally, the USDA’s bi-annual report released on May 23 projected a rise in global sugar production by +1.4% to a record 186.024 MMT for 2024/25, alongside a +0.8% increase in human sugar consumption to 178.788 MMT. The USDA also expects global sugar ending stocks to decline -4.7% to a 13-year low of 38.339 MMT.

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.